74% say they can’t rely on Social Safety advantages. what to not do
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Negative headlines about the future of Social Security can impact how people feel prepared for their own retirement.
According to a new survey by Allianz Life Insurance Company of North America, nearly three-quarters, 74% of people say they can’t count on Social Security benefits when it comes to the money they will have in retirement.
In response to the increased focus on the program in the news, the company has included Social Security questions in its quarterly Market Perceptions study for the first time. The survey, conducted in March, included more than 1,000 respondents.
In late March, the Social Security Administration trustees released a new annual report with a more forthcoming outlook for the program’s two trust funds, one paying retirement benefits and the other paying disability benefits. In 2034 — a year earlier than previously projected — the program may only be able to pay out 80% of the benefits of the combined funds.
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Notably, only the fund used to pay retirement benefits has its bankruptcy date even earlier — 2033, or a decade away. By that time, 77% of those benefits will be payable, according to the Trustees’ project.
“While the program has been a great success, steps must be taken to ensure its solvency over the long term,” AARP CEO Jo Ann Jenkins wrote in a comment Thursday.
And while most executives and experts agree that action needs to be taken, it remains uncertain exactly what changes may occur.
For many, this increases the uncertainty when planning for retirement. Concern about being able to rely on Social Security in retirement was most widespread among Generation X at 84%; followed by Millennials, 80%; and baby boomers, 63%, according to Allianz survey.
In addition, the survey found that most respondents – 88% – say it is important to have another guaranteed source of income in retirement besides Social Security in order to live comfortably.
But not everyone is lucky enough to have access to other resources. Social Security is the largest source of income for most people of retirement age, Jenkins found. It is now the only source of income for 14% of these people.
“Unfortunately, one of the reasons people make the mistake of claiming their benefits too soon is this,” said Kelly LaVigne, vice president of consumer insights at Allianz Life, of the prospects for the program.
They think, “‘I’ll get mine before it breaks,’ when actually that doesn’t help at all,” he said.
“Still a great benefit of waiting”
To see how a 23% cut in benefits (based on the latest Social Security Pension Fund projections) would affect you, experts recommend using a calculator or similar online tool to calculate benefits maximize.
Larry Kotlikoff — an economics professor at Boston University and creator of Maximize My Social Security, a claims software tool — ran the numbers and said it was “still a huge benefit to wait.”
“The reduction in benefits will happen even if you take the benefits early,” Kotlikoff said.
“So the benefit of taking them early is smaller than you might expect,” he said.
People make the mistake of claiming their benefits too soon… “I’ll get mine before it breaks,” when in reality that doesn’t help at all.
Vice President Consumer Insights at Allianz Life
In 1983 amendments were enacted to strengthen social security. A key reform – raising the full retirement age when beneficiaries receive 100% of the pension benefits they have earned – is still being phased in today. For those born in 1960 and later, the retirement age will be 67, not 66 as was the case for older cohorts.
Lawmakers could repeat the same strategy and raise the full retirement age to 70, Kotlikoff said. In fact, some leaders in Washington are already discussing the idea.
Under current rules, beneficiaries receive a large premium – up to 8% per annum – if they wait beyond full retirement age until age 70 to start receiving benefits.
Especially for single people who don’t have a spouse or children who might be eligible for benefits based on their life history, Kotlikoff said it still makes sense to wait.
However, for other situations — a lower life expectancy, disabled children who have yet to be picked up, a spouse who may also be able to claim child care benefits — the software typically recommends starting at an earlier age, according to Kotlikoff.
If the retirement age is raised, there will be a reduction in benefits. However, it is unlikely that such a change would affect current or near retirees, both Kotlikoff and LaVigne said.
Why you shouldn’t claim to only get 8.7% COLA
There’s another reason people might be tempted to claim retirement benefits early — an 8.7 percent cost-of-living adjustment, or COLA, that went into effect for this year to offset high inflation. It is the highest increase in around 40 years.
“If you’re 62 or older, whether you’re claiming your benefit or whether you’re waiting, that [COLA] increased to your Social Security amount,” LaVigne said.
In other words, you benefit either way, whether it’s increased the future amount you’ll receive or the amount you’re taking in now, he said.
Rather than focusing on the COLA, it’s important for potential beneficiaries to focus on putting together a plan so they know how to minimize their tax bills and what to do if inflation starts to pick up again during their retirement years.
“If you don’t have a plan, how do you know what to do when the unexpected happens?” said LaVigne.